After making great strides following the Pension Protection Act of 2006 (PPA), adoption of auto enrollment has continued to build slowly but steadily in recent years. According to DOL Form 5500 data, by 2021 the feature has been adopted by plan sponsors housing almost 50% of total 401(k) participant accounts.

The problem of missing participants in employer-sponsored retirement plans is one of the most important, yet perplexing issues facing plan sponsors, and for good reason.

Ensuring that participants (or their beneficiaries) receive their benefits is the essence of an employer’s fiduciary responsibility – and missing or unresponsive participants who become separated from those benefits can generate significant risks for plan fiduciaries.

Increasingly, 401(k) plans have become more-and-more “institutionalized” – reflected by an increased level of sophistication in investment options, coupled with a downward trend in fees. 

When auto enrollment was widely adopted under the Pension Protection Act of 2006, it was a well-intentioned idea for helping Americans save more for retirement.

But in this case, what seemed like the perfect recipe for increasing retirement savings for hardworking Americans was missing a key ingredient.

Although the 401(k) is today the primary retirement-savings vehicle for many hardworking Americans, it can be easy to forget that the 401(k) is still a relatively new phenomenon.

Today, Boston Research Technologies (BRT) and Retirement Clearinghouse (RCH) issued a joint press release announcing the key findings from a survey examining the retirement industry’s missing participant problem.  The survey, The Mobile Workforce’s Missing Participant Problem, is the first to examine the problem from the perspective of the participant and offers unique insights into its various dimensions.

Despite differences big and small, all retirement plan sponsors and record-keepers experience at least one common problem—the seemingly intractable incidence of participants who have left behind small accounts in the plans sponsored by their former employers and failed to update their address when they subsequently change residence, a.k.a. missing participants.

Two weeks ago, I authored an article applauding the American Benefits Council for their October 2^nd, 2017 letter to the Department of Labor (DOL), which clearly identified the root causes of missing participants: a highly-mobile workforce and a lack of retirement savings portability. Extending the Council’s insight, I maintained that what’s really “missing” in our defined contribution system are initiatives that move retirement savings forward when participants change jobs, such as auto portability. When implemented, these initiatives could serve to dramatically decrease the overall incidence of missing participants.

On October 2^nd, 2017, the American Benefits Council delivered a letter to the Department of Labor (DoL), urging the DoL to act on the problem of unresponsive or missing participants, an issue that has proven to be a significant point-of-pain for plan sponsors.

It’s generally accepted that the small-balance accounts of terminated 401(k) plan participants have been a problem for plan sponsors, resulting in increased plan costs, fiduciary risk and other ancillary problems, such as missing participants and uncashed distribution checks.

Now, based on new information from EBRI and other sources, we’re learning that small accounts are a large and growing problem for active participants as well.